slug: title-insurance-explained

Title Insurance Explained: Why You Need It and What It Protects

Title insurance is one of the most misunderstood—yet crucial—components of a real estate transaction. Unlike other types of insurance that protect against future events, title insurance protects against past issues that could threaten your ownership of the property.

When you purchase a home, you're not just buying a physical structure; you're buying the legal right to own and occupy that property. Title insurance ensures that right is legitimate, clear, and defendable. Without it, you could discover after closing that someone else has a claim to your property, that there are liens you're responsible for, or that your deed contains errors that make your ownership questionable.

This comprehensive guide explains what title insurance is, why it matters, what it costs, the difference between owner's and lender's policies, and whether this expense is worth it.

What Is Title Insurance?

Title insurance is a policy that protects real estate owners and lenders from financial loss due to defects in a property's title. These defects might include:

Prior liens or mortgages that weren't properly released
Ownership claims by heirs or ex-spouses
Forged documents in the chain of title
Errors in public records
Undisclosed easements or restrictions
Fraud in the property's history

Key characteristic: Title insurance is unique because it protects against past events, not future ones. The policy covers issues that existed before you purchased the property, even if they're discovered years later.

How Title Insurance Works

The Title Search

Before issuing insurance, the title company conducts an extensive title search—examining public records to verify:

Chain of title: Complete ownership history to ensure legitimate transfer from owner to owner

Liens and encumbrances: Outstanding mortgages, tax liens, mechanic's liens, judgment liens

Easements and restrictions: Rights others have to use the property or limitations on how you can use it

Legal description: Confirming the exact property boundaries and description

Judgments: Court judgments against previous owners that could affect the property

Probate issues: Ensuring proper estate handling if a previous owner died

Example timeline: The title company may examine records going back 30-50+ years to verify an unbroken chain of legitimate ownership.

The Title Commitment

After the search, the title company issues a title commitment (also called a preliminary title report) that shows:

Schedule A: Basic information about the property and parties

Schedule B-I: Requirements that must be met before the policy is issued (like paying off existing mortgages)

Schedule B-II: Exceptions—issues the title company won't insure against (like known easements)

This commitment lets you know about any problems before closing so they can be resolved.

Clearing Title Issues

If the search reveals problems, they must be resolved before closing:

Common resolutions:

Paying off outstanding liens
Obtaining releases for satisfied mortgages
Correcting errors in public records
Getting quitclaim deeds from people with potential claims
Resolving boundary disputes
Clearing mechanics' liens

Sometimes issues can't be resolved, and the transaction must be cancelled or restructured.

The Insurance Policy

Once title issues are cleared, the title company issues the insurance policy at closing. This policy:

Protects against covered title defects
Provides legal defense if your title is challenged
Pays for financial losses up to the policy limit
Requires only a single premium paid at closing
Lasts as long as you or your heirs own the property

Two Types of Title Insurance

Most transactions involve two separate title insurance policies:

Owner's Policy (Owner's Title Insurance)

Protects the property buyer.

Coverage amount: Equal to the purchase price

Protection:

Your ownership rights
Your right to sell the property
Your right to mortgage the property
Your right to use the property as permitted

Duration: As long as you or your heirs have an interest in the property

Cost: One-time premium at closing; typically $1,000-$4,000 depending on property value and location

Who pays: Varies by location:

In some areas, buyers traditionally pay
In others, sellers traditionally pay
Often negotiable in the purchase agreement

Is it required? No—but highly recommended and standard practice

Lender's Policy (Loan Policy)

Protects the mortgage lender.

Coverage amount: Equal to the loan amount; decreases as you pay down the loan

Protection:

Lender's mortgage interest in the property
Lender's right to foreclose if you default
Lender's priority position (in case of competing claims)

Duration: Until the loan is paid off

Cost: One-time premium at closing; typically $500-$1,500 (less expensive than owner's policy because it's issued simultaneously)

Who pays: Borrower (you)

Is it required? Yes—virtually all lenders require it as a condition of the loan

Important note: The lender's policy does NOT protect you, the owner. It only protects the lender. This is why you need your own owner's policy.

Simultaneous Issue Discount

When owner's and lender's policies are issued together, you receive a significant discount on the lender's policy—often 30-60% off what it would cost separately.

Example:

Owner's policy: $2,500
Lender's policy (if purchased alone): $2,000
Lender's policy (simultaneous discount): $800
Total: $3,300 instead of $4,500

This makes purchasing both policies together much more cost-effective.

What Title Insurance Covers

Title insurance protects against numerous title defects:

Forged Documents

Scenario: A previous deed in the chain of title was forged. Years after you purchase, the rightful owner appears and claims the property.

Without title insurance: You could lose the property and the money you paid for it.

With title insurance: The title company defends your ownership and compensates you if you lose the property.

Undisclosed Heirs

Scenario: A previous owner died, and the estate was settled improperly. An heir who wasn't included in the probate claims an ownership interest.

Without title insurance: You'd have to fight the claim at your own expense and might have to pay the heir or lose the property.

With title insurance: The title company handles the legal defense and any settlement costs.

Liens from Previous Owners

Scenario: The previous owner had unpaid [contractor](/blog/diy-vs-contractor) bills. The contractor files a mechanic's lien on the property after you close.

Without title insurance: You might be responsible for paying the lien despite not owing the debt.

With title insurance: The title company pays the lien or defends against it.

Recording Errors

Scenario: The county recorder's office made an error in recording documents, creating ambiguity about ownership.

Without title insurance: You'd have to pay to correct the error.

With title insurance: The title company handles correction and any resulting legal issues.

Boundary Disputes

Scenario: After closing, you discover the survey was incorrect, and part of your house is actually on the neighbor's property.

Without title insurance: You'd face potential loss of property or expensive resolution.

With title insurance: Depending on the policy, the title company may help resolve the dispute.

Undisclosed Easements

Scenario: After purchase, you discover an easement giving a utility company access through your backyard that wasn't disclosed.

Without title insurance: You must live with the easement even though it affects your use and property value.

With title insurance: If the easement wasn't excepted in your policy, the company may compensate you for the loss in property value.

Fraud in Chain of Title

Scenario: Ten years ago, someone in the ownership chain used a stolen identity to sell the property. The real owner now comes forward.

Without title insurance: Your ownership could be completely invalidated.

With title insurance: The title company defends your title and compensates you if necessary.

What Title Insurance Doesn't Cover

Understanding exclusions and exceptions is equally important:

Standard Exclusions

Issues generally not covered:

Title defects you create: Problems arising after you take ownership

Known defects: Issues disclosed in the title commitment that you accepted

Government actions: Eminent domain (government taking property for public use)

Environmental issues: Contamination or environmental hazards

Zoning violations: Current or future zoning problems

Native American land claims: In some states, claims on lands subject to tribal rights

Boundary issues identified in the survey: If the survey shows a problem and it's excepted in the policy

Policy Exceptions

Specific items listed in Schedule B-II that aren't covered:

Specific easements identified in the title search
Covenants and restrictions of record
Current property tax liens (which you're responsible for going forward)
Mineral rights reservations
Specific boundary issues

Important: Read Schedule B-II carefully before closing. These exceptions can significantly affect your property rights.

Access Issues

Standard policies often don't cover:

Whether the property has legal access to a public road
Whether access roads are adequate for your intended use

Solution: Purchase an enhanced or extended coverage policy, or add specific endorsements.

Enhanced vs. Standard Policies

Standard Policy (ALTA Standard Coverage)

Covers defects found in public records plus:

Forgery and fraud
Defective recording
Lack of legal capacity
Undisclosed heirs

Enhanced/Extended Policy (ALTA Homeowner's Policy)

Includes standard coverage PLUS:

Building permit violations by previous owner
Subdivisions violations
Boundary wall and fence encroachments (up to a limit)
Forgery after the policy date
Forced removal of structure due to lack of legal access
Post-policy forgery
Unmarketability of title

Cost difference: Enhanced policies typically cost 10-20% more than standard policies but provide significantly more protection.

Recommendation: For most homebuyers, the enhanced policy is worth the additional cost.

Title Insurance Costs

Costs vary significantly by location and property value.

Pricing Factors

Property value: Higher value = higher premium (though not proportionally)

Location: States regulate pricing differently; some states have mandated rates

Policy type: Owner's policies cost more than lender's policies

Endorsements: Additional coverages increase cost

Simultaneous issue: Discounts when both policies issued together

Example Costs

$300,000 property:

Owner's policy: $1,500-$2,500
Lender's policy: $500-$800
Total: $2,000-$3,300

$600,000 property:

Owner's policy: $2,500-$4,000
Lender's policy: $800-$1,200
Total: $3,300-$5,200

Who Pays?

Owner's policy: Custom varies by location and is negotiable:

In many Eastern states: buyers typically pay
In many Western states: sellers typically pay
In some states: split between buyer and seller
Always negotiable in the purchase agreement

Lender's policy: Borrower (buyer) always pays

Is It Regulated?

Regulated states: Some states set mandatory rates that all title companies must charge. In these states, price shopping doesn't help—but service quality still matters.

Unregulated states: Title insurance rates can vary between companies. Shopping around can save money.

States with file and use: Companies file their rates but can vary. Some shopping opportunities exist.

Choosing a Title Company

While lenders often recommend title companies, you typically have the right to choose your own (and potentially save money or get better service).

Factors to Consider

Reputation and stability: Choose financially stable companies with good track records

Service quality: Responsiveness, communication, problem-solving ability

Cost: In unregulated states, compare prices

Experience: Especially important for complex transactions

Technology: Modern platforms for document signing and tracking

Claims history: Companies with good claims-paying reputations

Questions to Ask

"What's included in my owner's policy?"
- Standard or enhanced coverage?
"What are the exceptions in my policy?"
- What won't be covered?
"Should I purchase endorsements?"
- Additional coverages available?
"What's your claims process?"
- How do I file if an issue arises?
"How long does the title search take?"
- Timeline expectations
"What happens if title issues are found?"
- Resolution process and timing

Common Title Issues and Resolutions

Unpaid Property Taxes

Issue: Previous owner has unpaid taxes, creating a lien

Resolution: Paid from seller's proceeds at closing; lien released

Outstanding Mortgage

Issue: Existing mortgage wasn't properly released

Resolution: Contact previous lender for payoff and release; may delay closing

Mechanic's Lien

Issue: Contractor claims non-payment for work done

Resolution: Verify legitimacy; either paid at closing or cleared through negotiation/legal action

Boundary Encroachment

Issue: Survey reveals structure crosses property line

Resolution: Negotiate with neighbor for easement or quit claim; possible boundary adjustment

Missing Heir

Issue: Estate wasn't properly settled; potential heir claims interest

Resolution: Legal proceedings to establish clear title; may require quiet title action

Divorce Issues

Issue: Ex-spouse not properly removed from title

Resolution: Obtain proper [documentation](/blog/heloc-documentation-requirements) or quitclaim deed from ex-spouse

Clerical Errors

Issue: Recording errors in public records

Resolution: File corrective documents with county recorder

Special Situations

Refinancing

When refinancing, your original owner's policy continues to protect you, but the lender requires a new lender's policy.

Cost: New lender's policy at current loan amount; may get reissue discount if refinancing soon after purchase

You don't need: New owner's policy (your existing one continues)

HELOCs and Second Mortgages

When obtaining a HELOC or [second mortgage](/blog/best-heloc-lenders-2026), the new lender typically requires a title search and lender's policy.

At HonestCasa: We coordinate title work for HELOC closings to ensure both our lien position and your ownership are properly protected.

[Subordination](/blog/heloc-subordination): If refinancing your first mortgage with an existing HELOC, the HELOC lender must agree to subordinate (remain in second position).

Investment Properties ([DSCR Loans](/blog/best-dscr-lenders-2026))

Title insurance works the same for investment properties:

Owner's policy protects investor
Lender's policy protects [DSCR loan](/blog/dscr-loan-guide) lender
Same types of coverage and exclusions apply

New Construction

Even new construction requires title insurance because:

The land had previous owners
Builder's creditors might place liens
Construction could violate setback requirements
Permits might not be properly issued

Inheritance

When inheriting property, consider purchasing an owner's title insurance policy if the deceased owner didn't have one. Issues in the chain of title could surface later.

Making a Title Insurance Claim

If a covered title issue arises:

Step 1: Notify the Title Company

Contact them immediately when you become aware of any title issue or challenge to your ownership.

Step 2: Provide Documentation

Supply:

Your title insurance policy
Documents related to the claim
Communication from the claiming party
Any legal filings

Step 3: Title Company Investigation

They'll:

Review the claim
Research the issue
Determine coverage under your policy
Decide on appropriate action

Step 4: Defense or Settlement

The title company will:

Provide legal defense if necessary
Negotiate settlements
Pay covered claims up to policy limits
Clear title defects if possible

Step 5: Resolution

Outcomes might include:

Title defect cleared
Financial compensation for loss
Settlement with claiming party
Legal victory defending your title

Is Title Insurance Worth It?

Arguments For Title Insurance

1. Protection against catastrophic loss Without it, you could lose your entire investment in the property

2. Peace of mind Know your ownership is secure and defendable

3. Legal defense included Title company provides and pays for legal defense

4. Required for mortgage Lender's policy is required; adding owner's policy is incremental cost

5. One-time cost Unlike other insurance, single premium provides lifetime coverage

6. Issues do happen Title problems aren't just theoretical; they occur in real transactions

Arguments Against Title Insurance

1. Title problems are rare The thorough title search catches most issues before closing

2. Significant cost Thousands of dollars for protection you may never use

3. Many exclusions Numerous situations aren't covered

4. May be optional Owner's policy isn't legally required (though lender's policy is)

The Verdict

For most homebuyers, owner's title insurance is worth the cost because:

Your home is likely your largest investment
The consequences of title defects can be devastating
The cost is relatively small compared to the property value (typically 0.5-1%)
Claims, while infrequent, do happen and can be financially catastrophic
Peace of mind has real value

Recommendation: Purchase owner's title insurance, preferably enhanced/extended coverage if available. The incremental cost over the required lender's policy is modest protection for a major investment.

Title Insurance vs. Home Warranty vs. Homeowner's Insurance

Don't confuse these different protections:

Title Insurance:

Protects ownership rights
Covers past defects in title
One-time premium
Lasts forever

Homeowner's Insurance:

Protects structure and belongings
Covers future events (fire, theft, etc.)
Annual premium
Required while you own the home

Home Warranty:

Covers mechanical systems and appliances
Covers future breakdowns
Annual premium
Optional

You need homeowner's insurance and title insurance. Home warranty is optional.

Conclusion

Title insurance protects what may be your most valuable asset—your ownership of your home. While the title search process catches most issues, title insurance provides essential protection against undiscovered defects that could threaten your ownership or cost you tens of thousands of dollars.

Key takeaways:

Owner's title insurance protects you; lender's title insurance only protects the lender
One-time premium provides lifetime coverage for you and your heirs
Enhanced policies offer significantly more protection for modest additional cost
Title issues are rare but catastrophic when they occur
Coverage includes legal defense, not just financial compensation
Read Schedule B-II to understand what's not covered in your specific policy

At HonestCasa, we work with reputable title companies to ensure smooth closings for all our loan products—traditional mortgages, HELOCs, and DSCR loans. We help our borrowers understand title insurance requirements and make informed decisions about coverage.

Title insurance may seem like just another closing cost, but it's actually one of the most valuable protections you'll purchase. It ensures that when you buy a home, you're getting what you paid for: clear, defensible ownership that can't be challenged by claims from the past. That peace of mind is priceless.

Title Insurance Buyers Guide: Owner's vs. Lender's Policy Explained
[Closing Costs Guide for First-Time Buyers: Every Fee Explained and How to Reduce Them](/blog/closing-costs-guide-first-time-buyers)
Closing Disclosure Guide
[Heloc Closing Costs Guide](/blog/heloc-closing-costs-guide)
Interest Rate Vs Apr Explained

Title Insurance Explained: What It Covers, What It Costs, and Whether You Need It

Key Takeaways